Overview: Create. Connect. Capture.

Learning Goal: Determine how organizations create, connect & capture value.

A business model describes the rationale of how an organization creates, delivers, and captures value.
-Wikipedia

Overview of the Terms

1. Value Creation

Value Creation is what we make for customers that creates gain or relieves pain within jobs or tasks they complete. Value can be created in two ways: First, by producing an offering (a good or service) that is worth more to customers than its cost to produce; and second, by preventing the production of an offering that is worth less to the market than its production cost. Clearly, expending more to produce something than its market price destroys value. Value must be created and delivered to customers before any of it becomes available for capture by your company.

2. Value Connection

Value Connection is the way we deliver the product from the company to the consumer. This phrase is a bit of a misnomer because it implies that all you need to do is be willing and able to deliver something to be successful. If we take a more customer-centric view, we will realize that value is less “delivered” by you, and more “accepted” by your customers. The ultimate decision to do the deal always lies with the customer. Customers are willing to accept and use your value because of their awareness of your company (nurtured by your marketing message), their belief that your offering will solve a business problem (reinforced by your sales approach), and their expectation of improved operations (made credible by your customer service practices).

3. Value Capture

Value Capture is how the mission (purpose) is further advanced and money is received for the company. This is the stage at which your organization gets paid. The question is, how much of the total value should you take? Simple math dictates that you would get whatever amount is left after subtracting your costs of value creation and delivery from the offering’s sales price. But it’s never that simple because of other considerations; such as, your competitors’ pricing, the amount of surprise-and-delight you are trying to create for your customers, and your longer-term market strategy—just to name a few.

Industry Case

Movie Theater

1895 in Germany is the launch of the first theater. Its big and expensive and not much has changed since 1895.

  • Create
    • A superior movie watching experience. The best audio/visual experience possible.
  • Connect
    • They are big and expensive buildings to build and maintain
    • 40,000-50,000 square foot buildings at $15.00-$21.00 a square foot
  • Capture
    • $8.00 a ticket plus $10.00 for a drink and popcorn
    • In 2014, U.S./Canada box office was $10.4 billion, down 5% from $10.9 billion in 2013.
    • 3D box office ($1.4 billion) comprised 14% of total box office, two percentage points less than the previous year.
    • Admissions, or tickets sold (1.27 billion), and average tickets sold per person (3.7) both declined 6% in 2014. The average cinema ticket price increased by 4 cents (less than 1%) in 2014, less than the rate of inflation in the economy.
    • More than two-thirds of the U.S./Canada population (68%) – or 229.7 million people – went to the cinema at least once in 2014, comparable to the previous year. Frequent moviegoers who go to the cinema once a month or more continue to drive the movie industry, accounting for 51% of all tickets sold in the U.S./Canada. Despite an increase in frequent moviegoers in 2014, total tickets purchased by frequent moviegoers, occasional and infrequent moviegoers all decreased in 2014 compared to 2013.

Blockbuster

Blockbuster was founded 1985. At its peak in 2004, Blockbuster had up to 60,000 employees and over 9,000 stores.

  • Create
    • Cheap access to movies in the convenience of your home.
    • Make your own popcorn and avoid annoying teens.
    • Most of this is made possible by technological advances in the quality of home audio and televisions.
  • Connect
    • Retail Stores.
    • 5,000 sq ft. buildings at $21-25 sq ft.
  • Capture
    • $4.99/3 days - $1 Per Day Fine

Netflix (DVD by Mail)

Founded 1997 - Reed Hastings started the company after owing $40 for a late Apollo 13 rental from Blockbuster. In another twist of irony, Netflix would be later offered to Blockbuster for $50 million. Blockbuster rejected.

  • Create
    • Now you don’t even get off the couch if you don't mind waiting a couple of days.
  • Connect
    • Via USPS. NO RETAIL LOCATIONS.
  • Capture
    • $9.99/month.
    • 2014 still had 5.7 million subscribers @ 765 million Revenue

Redbox

Founded 2002 - Nothing cool here. Just an improved business model.

  • Create
    • Really cheap access to movies.
    • Locations everywhere and we don't care where you return it.
    • The rules are much easier to understand than Blockbuster
  • Connect
    • Kiosks in Grocery Stores and McDonalds.
    • This is a very reduced cost version of Blockbuster.
  • Capture
    • .99 a movie per day.

Netflix, Amazon Prime, Apple, Google, and Facebook

  • Netflix
    • Morphed into a $40 billion business by amassing 75 million subscribers through producing exclusive, high-quality programming
      • Original Programming
        • Master of None
        • Orange is the New Black
        • House of Cards
        • Fuller House
        • Gilmore Girls
      • Licensing
        • Parenthood
        • Breaking Bad
    • 2015 - Netflix has a programming budget of $6 billion, second only to ESPN
    • Over 600 Programming hours
  • Amazon
    • Launched original video that has helped add tens of millions of members to Prime for the sole reason of getting video
  • Google
    • Started Google Fiber as a move to provide an alternative to accessing the internet beyond cable companies
    • Consumers are rapidly cutting their $200 a month cable bill
  • Apple
    • From iTunes to the App Store, Apple has mastered the art of negotiating licensing deals with studios and networks
    • 2015 Apple generated $19.9 Billion in revenue through services
    • Apple services revenue is growing at 24% due to users easy access to through Apple products (iPhone, iPad, Apple TV)
    • There are 860 million iTunes accounts, only 13 million have iTunes Music
      • Launched music documentaries and concert series
  • YouTube
    • Red - a $9.99 a month ad-free subscription service with exclusive TV shows, movies and music
    • 8 billion video views a day
  • Facebook Live
    • Unscripted and unfiltered video, just like millenials expect it.
    • 1.6 billion monthly users (potential viewing audience)
    • The major hurdle is the Facebook Feed which doesn't make Facebook a destination to drop large media. It's easily lost.

Lesson Information

Presentation

CCC Details.pdf